Banks don’t need our money anymore! What does this mean for savings accounts?

The Bank of England’s latest credit conditions report has been released. Here’s what’s in store for savings accounts and lending in the UK.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Portrait of worried woman standing beside window

Image source: Getty Images

New data from the Bank of England suggests that troubling times are ahead for both savers and buyers in the UK. This could have a knock-on effect on those who have savings accounts with the Bank of England, and it may be some time before the current credit conditions start to settle.

In a recent press release from Hargreaves Lansdown, senior personal finance analyst Sarah Coles shared her views on how the implications of Bank of England credit conditions survey could affect both savers and buyers in the UK. Here’s everything you need to know.
[top_pitch]

The UK’s current credit conditions

The Bank of England’s Q4 credit conditions survey has revealed troubling times ahead for our savings. The demand for mortgages has fallen and is expected to continue falling for the first few months of 2022. As a result, banks are lending less money to prospective buyers.

The fall in demand for mortgages is mainly due to rising inflation, which has made it difficult for people to afford a new home. There is also currently a shortage of spacious housing in the UK, which has put the brakes on purchases for larger families.

However, there has been a significant increase in credit card lending in the last three months of 2021. This comes in response to the financial squeeze, which is making it tough for Brits to make ends meet or top-up their savings accounts. Luckily, banks are prepared to lend and are expected to continue to accommodate increased lending until March 2022.

[middle_pitch]

What does this mean for savings?

According to Sarah Coles, UK banks “don’t need our money” anymore! This is mainly due to falling mortgage rates, which aren’t expected to slow until UK house prices start to drop. A shortage in the demand for mortgages means that banks do not need the money to fund this type of lending. As well as this, banks have no need to attract savers with high-interest rates.

As a result, high street banks are in no hurry to increase the interest rates of their savings accounts. In fact, interest rates are at all-time lows and may not rise for a while. This means that savers who want better rates may need to switch accounts and shop around.

An increasing number of people are looking at online alternatives to the high street giants. These newer banks often come with higher interest savings accounts that could be hugely beneficial for your savings. If you’re looking for a new way to build your nest egg, take a look at our top-rated savings accounts

What does this mean for borrowers?

While mortgage lending may have fallen according to the Q4 report, credit lending is up in the UK. The rising demand for credit cards is set to continue in 2022. Inflation is currently at 5.1%, and prices of petrol and energy are increasing. This is putting a huge strain on UK households and increasing the need for credit card loans.

At the moment, banks are willing to lend and interest-free credit periods have been extended. However, credit card borrowers could face major problems in the future. If interest rates rise, customers could struggle to keep up with repayments.

Sarah Coles explains that the best way to deal with the financial squeeze is to set a tight budget and avoid borrowing large amounts on a credit card. This will prevent you from falling into large amounts of debt in the future. She also recommends making the most of 0% interest periods by paying off any existing debt before interest is due.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »